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ACCOUNTS

ACCOUNTS

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  • FINANCIAL ACCOUNTING Accounts is a language of business……. WARREN BUFFETT Plan Budget Action Do Book keeping Check Financial Reports P&L BS CF Management Accounting
  • FINANCE
    • Money resource ,Pool of funds, Raising of funds, Capital…..
    • Science of managing money.… Fund Management
    • Commercial activity of providing funds and capital…. finance for Home
    • Includes Lending and Saving money.
    • Funds the Assets in form of money.
    • It is a Scare Resource.
    • Involves Time, Money, and Risk and how they are Interrelated.
    • Stepping stone to grab the Opportunities.
    • It is a way for Development.
    • Essential for Sustainability.
  • ACCOUNTING
    • Systematic record of all transactions, classification, summarization and interpretation…book keeping is concerned with record keeping.
    • Helps to take an important countless decisions and make right decision at right time.
    • It is pervasive in nature as it provide information to every person regarding particular organization, like….
    • Owners can know whether they have made profitable investment.
    • The cost accountant can know how to control the cost of production.
    • Accounts is applicable in various fields….
    • Trading concerns like….sole, partnership, joint, co.
    • Non – trading concerns like…..clubs, societies, associations.
    • Agriculture farming d . Households e. employers and employees.
    • Government….helps in budgeting and planning .
    • It is a art and science.
    • It is financial in nature.
  • SCOPE OF FINANCE AND ACCOUNTING
    • FINANCE
    • In modern business, scope of finance is not so narrow. It not only raise funds but also provides the answers after the funds are collected.
    • It helps in taking various decisions…..
    • Acquisition of assets.
    • Specific forms of assets where money is to be invested.
    • The composition of its liabilities are covered under the scope of finance functions and thus affects 3 major decisions:
    • 1.Investment 2. Financing 3. Dividend
    • ACCOUNTING
    • Management and cost accounting
    • Financial accounting
    • Financial management
    • Auditing
  • FINANCIAL ACCOUNTING
    • Financial Accounting intention is to prepare the statements revealing the income and financial position of the business on the basis of events which have happened in the period being reckoned.
    • The process leading to presentation of the accounts to shareholders is known as Financial Accounting .
    • Financial accounting also means Shareholders Reporting or Stewardship Accounting (accountable to the true owners for the conduct of the business affairs). Shareholders reporting, as they are owners of the business in a corporate form of organization.
    • “ The branch of accounting that is concerned with the recording of transactions using GAAP for a business and other economic unit and with a periodic preparation of various statements from such records.”
    • It is concerned with external reporting .
    • All the stake holders have interest in the financial accounts to know the performance of the company from the view point for their respective stakes.
    • (Shareholders, Directors, SEBI/RBI, Bankers and Lending Inst., Employees, Customers, Government, Vendors).
  • NATURE OF FINANCIAL ACCOUNTING
    • FA follows GAAP and is not used for internal decision making.
    • FA report is based strictly on historical, past financial performance, i.e look backward to analyze the performance.
    • FA information is used by different people outside the organization.
    • Required to represent true and fair view.
    • It is prepared once a year.
  • FUNCTION AND ROLE OF FINANCIAL ACCOUNTING
    • FUNCTIONS
    • The functions of FA is to prepare reliable report on a business financial statement at any given time.
    • It reports objective financial information in a specific format for the viewer to interpret, it does not interpret or provide advice on the financial health of a company.
    • ROLE
    • Help managers to manage the business more efficiently by preparing regular financial information.
    • Record financial transactions.
    • Provide other stakeholders with legal/ vital information.
  • ACCOUNTING EQUATIONS
    • Balance Sheet Equation :
    • Assets = liabilities + Capital
    • Income Statement or Profit And Loss Account Equation:
    • Profit = Income – Expenses
  • M/S ARYAN TRADERS LIMITED S.N. Transection Assets Amt ( ` ) Liabilities Amt ( ` ) Capital Amt ( ` ) 1 Owner brings in equity share capital ` 10 lacs Cash 10     Equity share capital 10 2 Preference share capital of ` 2 lacs is raised Cash 2     Preference share capital 2   Total Assets 12 Total Liabilites 0 Owners Fund 12 3 M/s Aryan Traders Ltd borrowed on a long term basis from ICICI ` 4 lacs @ 12% per annum. Cash 4 Long term borrowings ( ICICI) 4 Equity share capital Preference share capital 10 2   Total Assets 16 Total Liabilites 4 Owners Fund 12 4 Purchased land, builing , plant machinery for cash for ` 10 lacs Fixed Assets Cash 10 6 Long term borrowings ( ICICI) 4 Equity share capital Preference share capital 10 2   Total Assets 16 Total Liabilites 4 Owners Fund 12
  • 5 Purchased furniture and fixtures ` 2 lac on credit from M/s Z Fixed Assets Current Assets Cash 12 6 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) 4 2 Equity share capital Preference share capital 10 2     Total Assets 18 Total Liabilites 6 Owners Fund 12 6 Purchased stock of 10,000 bottles of tables @ ` 10 per bottle on credit M/s P Fixed Assets Current Assets Cash Stock 12 6 1 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) 4 2 1 Equity share capital Preference share capital 10 2   Total Assets 19 Total Liabilites 7 Owners Fund 12 7 Purchased 5000 bottles of tablets @ ` 10 per bottle for cash Fixed Assets Current Assets Cash ( 6 - 0.50) Stock (1 + 0.50) 12 5.50 1.50 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) 4 2 1 Equity share capital Preference share capital 10 2   Total Assets 19 Total Liabilites 7 Owners Fund 12
  • 8 Return to M/s P 1000 bottle @ ` 10 per bottle Fixed Assets Current Assets Cash ( 6 - 0.50) Stock (1.50 - 0.10) 12 5.50 1.40 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) 4 2 0.90 Equity share capital Preference share capital 10 2   Total Assets 18.90 Total Liabilites 6.90 Owners Fund 12.00 9 Sold for credit 6,000 bottles @ ` 20 per bottle Fixed Assets Current Assets Cash ( 6 - 0.50) Stock (1.40 - 0.60) Debtors 12 5.50 0.80 1.20 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) 4 2 0.90 Equity share capital Preference share capital Reserves (Profit) 10 2 0.60   Total Assets 19.50 Total Liabilites 6.90 Owners Fund 12.60
  • 10 Sold for Cash 4,000 bottles @ ` 20 per bottle Fixed Assets Current Assets Cash ( 5.50 + 0.80) Stock (0.80 -0.40) Debtors 12 6.30 0.40 1.20 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) 4 2 0.90 Equity share capital Preference share capital Reserves (Profit) (0.60 + 0.40) 10 2 1     Total Assets 19.90 Total Liabilites 6.90 Owners Fund 13.00 11 Rent expences incurred and paid ` 50,000 Fixed Assets Current Assets Cash ( 6.30- 0.50) Stock (0.80 -0.40) Debtors 12 5.80 0.40 1.20 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) 4 2 0.90 Equity share capital Preference share capital Reserves (Profit) (1 - 0.50) 10 2 .50
  • 12 Paid insurance for 2 years ` 50,000 (` 26,000 relates to 2001) Fixed Assets Current Assets Cash ( 5.80- 0.50) Stock (0.80 -0.40) Debtors prepaid insurance 12 5.30 .40 1.20 .26 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) 4 2 0.90 Equity share capital Preference share capital Reserves (Profit) (.50 - .24) 10 2 .26     Total Assets 19.16 Total Liabilites 6.90 Owners Fund 12.26 13 Commission income received in cash ` 25,000 Fixed Assets Current Assets Cash ( 5.30 + 0.25) Stock (0.80 -0.40) Debtors prepaid insurance 12 5.55 .40 1.20 .26 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) 4 2 0.90 Equity share capital Preference share capital Reserves (Profit) (.26 + .25) 10 2 .51     Total Assets 19.41 Total Liabilites 6.90 Owners Fund 12.51
  • 14 Advance received from customers ` 1 lac Fixed Assets Current Assets Cash ( 5.55 + 1) Stock (0.80 -0.40) Debtors prepaid insurance 12 6.55 .40 1.20 .26 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Income received in advance 4 2 .90 1 Equity share capital Preference share capital Reserves (Profit) (.26 + .25) 10 2 .51     Total Assets 20.41 Total Liabilites 7.90 Owners Fund 12.51 15 Tax paid in advance ` 25,000 Fixed Assets Current Assets Cash ( 6.55 - .25) Stock (0.80 -0.40) Debtors prepaid insurance Advance Tax 12 6.30 .40 1.20 .26 .25 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Income received in advance 4 2 .90 1 Equity share capital Preference share capital Reserves (Profit) (.26 + .25) 10 2 .51     Total Assets 20.41 Total Liabilites 7.90 Owners Fund 12.51
  • 16 Rent expenses incurred but not paid for ` 1 lac Fixed Assets Current Assets Cash ( 6.55 - .25) Stock (0.80 -0.40) Debtors prepaid insurance Advance Tax Miscellaneous assets loss 12 6.30 .40 1.20 .26 .25 .49 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expenses 4 2 .90 1 1 Equity share capital Preference share capital Reserves (Profit) (.51 - 1) 10 2 NIL     Total Assets 20.90 Total Liabilities 8.90 Owners Fund 12.00 17 Sold 3,000 bottles for cash `1 lac Fixed Assets Current Assets Cash ( 6.30 + 1) Stock (0.40 -0.30) Debtors prepaid insurance Advance Tax 12 7.30 .10 1.20 .26 .25 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expenses 4 2 .90 1 1 Equity share capital Preference share capital Reserves (Profit) (-.49 + .7) 10 2 .21     Total Assets 21.11 Total Liabilities 8.90 Owners Fund 12.21
  • 18 Depreciation on fixed assets @20% p.a. Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1) Stock (0.40 -0.30) Debtors prepaid insurance Advance Tax Micellaneous Assets loss 12 2.40 9.60 7.30 .10 1.20 .26 .25 2.19 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expences 4 2 .90 1 1 Equity share capital Preference share capital Reserves (Profit) (.21 - 2.4) 10 2 NIL     Total Assets 20.90 Total Liabilites 8.90 Owners Fund 12.00
  • 19 Commission income earned ` 5 lac Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1) Stock (0.40 -0.30) Debtors prepaid insurance Advance Tax Accrued Income 12 2.40 9.60 7.30 .10 1.20 .26 .25 5 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expences 4 2 .90 1 1 Equity share capital Preference share capital Reserves (Profit) (5 - 2.19) 10 2 2.81     Total Assets 23.71 Total Liabilites 8.90 Owners Fund 14.81 20 Interest expenses incurred @12% per annum on ICICI loan ` 4 lac Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1) Stock (0.40 -0.30) Debtors prepaid insurance Advance Tax Accrued Income 12 2.40 9.60 7.30 .10 1.20 .26 .25 5 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expences outstanding interest expenses 4 2 .90 1 1 .48 Equity share capital Preference share capital Reserves (Profit) (2.81 - .48) 10 2 2.33     Total Assets 23.71 Total Liabilites 9.38 Owners Fund 14.33
  • 21 Advertising expenditure incurred ` .5 lac and ` .25 lac has to be deferred.(assume credit transaction) Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1) Stock (0.40 -0.30) Debtors prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.) 12 2.40 9.60 7.30 .10 1.20 .26 .25 5 .25 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Accounts Payable (advertising) Income received in advance Outstanding rent expences outstanding interest expenses 4 2 .90 .50 1 1 .48 Equity share capital Preference share capital Reserves (Profit) (2.33 - .25) 10 2 2.08     Total Assets 23.96 Total Liabilites 9.88 Owners Fund 14.08
  • 22 One customer Mr. X will not be able to pay ` 20,000 and management want a prvision for doubtful debt @10% Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1) Stock (0.40 -0.30) Debtors1.20-.30 less : baddebt less : prov. prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.) 12 2.40 9.60 7.30 .10 .90 (.20) (.10) .26 .25 5 .25 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Accounts Payable (advertising) Income received in advance Outstanding rent expences outstanding interest expenses 4 2 .90 .50 1 1 .48 Equity share capital Preference share capital Reserves (Profit) (2.08 - .30) 10 2 1.78     Total Assets 23.66 Total Liabilites 9.88 Owners Fund 13.78
  • 23 Purchsed 10,000 bottles for ` 1 lac and earned a cash discount of 10% Fixed Assets Less: Dep Net fixed assets Current Assets Cash (7.30 +.90) Stock (0.10 + 1) Debtors1.20-.30 less : baddebt less : prov. prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.) 12 2.40 9.60 6.40 1.10 .90 (.20) (.10) .26 .25 5 .25 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Accounts Payable (advertising) Income received in advance Outstanding rent expences outstanding interest expenses 4 2 .90 .50 1 1 .48 Equity share capital Preference share capital Reserves (Profit) (1.78 + .10) 10 2 1.88     Total Assets 23.76 Total Liabilites 9.88 Owners Fund 13.88
  • 24 Sold 10,000 bottles for ` 2 lac and received ` 1.8 lac in full satisfaction Fixed Assets Less: Dep Net fixed assets Current Assets Cash (6.40 +1.80) Stock (1.10 - 1) Debtors1.20-.30 less : baddebt less : prov. prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.) 12 2.40 9.60 8.20 .10 .90 (.20) (.10) .26 .25 5 .25 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Accounts Payable (advertising) Income received in advance Outstanding rent expences outstanding interest expenses 4 2 .90 .50 1 1 .48 Equity share capital Preference share capital Reserves (Profit) (1.88 + .8) 10 2 2.68     Total Assets 24.56 Total Liabilites 9.88 Owners Fund 14.68
  • 25 Provision for income tax @30% Fixed Assets Less: Dep Net fixed assets Current Assets Cash (6.40 +1.80) Stock (1.10 - 1) Debtors1.20-.30 less : baddebt less : prov. prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.) 12 2.40 9.60 8.20 .10 .90 (.20) (.10) .26 .25 5 .25 Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P) ( 1- 0.10) Accounts Payable (advertising) Income received in advance Outstanding rent expences outstanding interest expenses Provision for income tax 4 2 .90 .50 1 1 .48 .80 Equity share capital Preference share capital Reserves (Profit) (2.68 - .8) 10 2 1.88     Total Assets 24.56 Total Liabilites 10.68 Owners Fund 13.88